The B.C. government recently announced it will increase the minimum wage in September to $10.45 per hour. Thereafter, annual increases will be automatically pegged at the rate of inflation.
Shortly after the announcement, Minister of Jobs, Tourism, and Skills Training Shirley Bond said: "We want to protect the most vulnerable British Columbians in our province and... deal with the issue of those who are struggling with their families."
The goal of helping struggling families and the most vulnerable in society is laudable. But the problem is the minimum wage is the wrong policy to achieve this end. Before determining what the right policy is, we first need to understand who the impoverished really are. It turns out they are overwhelmingly not minimum wage earners.
Data from Statistics Canada for 2012 show that 89 per cent of minimum wage earners are not part of a poor household. ("Poor" is defined as income below Statistics Canada's low income cut-off.) By this measure, nearly nine of every 10 minimum wage earners in the province are not living in poor households.
This simple fact poses a clear problem for anyone claiming that the minimum wage can effectively fight poverty.
The reason for this seemingly counterintuitive statistic relates to the household status of minimum wage earners. According to 2014 data from Statistics Canada, 52 per cent of minimum wage workers lived with parents or other relatives, the vast majority of which are aged 15 to 24 and a sizeable share are still in school.
Of the remaining minimum wage earners, 19 per cent have working spouses, meaning their household income is higher than what a single minimum wage would provide.
Based on these statistics, at least 71 per cent of minimum wage earners are part of a household with another family earner, signalling they do not live on their income alone. An additional eight per cent live with non-relatives and likely share some of their living costs with other people.
Fortunately, the image of a single parent with young children struggling to get by on the minimum wage is rare. Again, according to Statistics Canada, this situation makes up about two per cent of all minimum wage earners.
With these facts in mind, it should not be surprising that empirical research has found that increasing the minimum wage does not have a statistically significant effect on the share of Canadians living in low income. In fact, one academic study found that minimum wage hikes increased the share of families falling below the relative poverty threshold.
And because 54 per cent of all minimum wage earner are young (ages 15 to 24), there is yet another problem for those advocating a minimum wage hike as an anti-poverty measure. For many of these young people, earning the minimum wage is only temporary. Research shows that earning the minimum wage is often a stepping stone to higher paid work as young people gain experience, basic skills, and education.
More broadly, for Canadians who find themselves in relative poverty, their stay is almost always temporary. But there is a subset of the population (about two per cent) that struggles in relative poverty for longer periods (six years or more).
People at risk of being in this group include lone parents, persons aged 45 to 64 and living alone, non-high school graduates, and people with some form of a physical or mental disability. It is not clear how raising the minimum wage will, in a meaningful way, help people in these groups escape poverty.
Policies aimed at tackling poverty should actually target those who are persistently poor. Raising the minimum wage is simply the wrong strategy.
This piece was co-written by Hugh MacIntyre, Fraser Institute analyst.
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